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Is Principal SmCap Gr I Inst (PGRTX) a Strong Mutual Fund Pick Right Now?

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Small Cap Growth fund seekers should consider taking a look at Principal SmallCap Growth I Institutional (PGRTX - Free Report) . PGRTX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PGRTX is part of the Small Cap Growth category, and this segment boasts an array of many other possible options. Small Cap Growth mutual funds usually focus their portfolios on stocks with large growth opportunities and a market cap of under $2 billion. These portfolios tend to feature small companies in up-and-coming industries and markets.

History of Fund/Manager

Principal Financial Group is based in Des Moines, IA, and is the manager of PGRTX. Principal SmallCap Growth I Institutional debuted in September of 2002. Since then, PGRTX has accumulated assets of about $163.89 million, according to the most recently available information. Randy L. Welch is the fund's current manager and has held that role since June of 2009.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 14.98%, and is in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 11.48%, which places it in the bottom third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 9.42%, the standard deviation of PGRTX over the past three years is 14.42%. The standard deviation of the fund over the past 5 years is 14.25% compared to the category average of 13.81%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors cannot discount the risks to this segment though, as it is always important to remember the downside for any potential investment. In PGRTX's case, the fund lost 55.42% in the most recent bear market and underperformed its peer group by 2.36%. This makes the fund a possibly worse choice than its peers during a sliding market environment.

Investors should note that the fund has a 5-year beta of 1.14, so it is likely going to be more volatile than the market at large. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. With a negative alpha of -1.55, managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Exploring the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is largely on equities that are traded in the United States.

As of the last filing date, the mutual fund has 94.57% of its assets in stocks, which have an average market capitalization of $3.49 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Other
  3. Industrial Cyclical
  4. Health

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, PGRTX is a no load fund. It has an expense ratio of 1.02% compared to the category average of 1.36%. From a cost perspective, PGRTX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $0; each subsequent investment has no minimum amount.

Bottom Line

Overall, Principal SmallCap Growth I Institutional PGRTX has a high Zacks Mutual Fund rank, and in conjunction with its comparatively weak performance, average downside risk, and lower fees, this fund looks like a great potential choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Small Cap Growth, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.


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